The Expanded Role of the Business Press Following Auditor Reputation Damage

This paper examines whether auditor reputation loss affects the interplay between a firm’s auditor and the business press. Exploiting the Arthur Andersen scandal as a quasi-natural experiment, I find that the media increased its coverage of Andersen’s clients following Andersen’s reputation loss and that the heightened negative coverage is informative of future restatements. These findings suggest that the media fulfills an expanded monitoring role of firms’ financial reporting following reputational damage to the firm’s auditor. Additional analyses corroborate the notion of the media expanding its monitoring of AA firms’ financial reporting and that the greater coverage is incrementally informative to investors. Overall, my study provides new evidence of the interaction between a firm’s auditor and the monitoring role of the business press.